A tiny public school district in northwest Michigan has found an unusual way to raise big money.

Manistee Area Public Schools has had its share of budget problems.

“Several years ago we were very, very low on our fund balance,” Kenn Cott, the assistant principal of Manistee High School/Middle School explained.

“When I say low, I mean like $40,000,” he said.

I met him in the gym during a summer basketball camp; he’s also the athletic director.

“We looked at anything and everything including athletic activities, paper, books, anything that we could come up with to see - where can we save money?” Cott said.

Manistee Area Public Schools got rid of freshman sports teams. They consolidated some school buildings. They offered teachers at the top of the pay scale incentives to leave.

Plus, they found a new way to make money.

How opening an online charter school adds up for Manistee public schools

In September 2014, Manistee Area Public Schools opened a virtual charter school. It’s called Michigan Great Lakes Virtual Charter Academy.

The new online charter school is located in an old office building in downtown Manistee.

Kendall Schroeder has been its superintendent since the school opened two years ago. He says no one quite anticipated the success they would have.

“The one day we were excited we had 30 students and the next day we had 300,” Schroeder said.

The growth was insane that first year.

High school principal Abby Brown says it didn’t slow down last school year either.

“I think that we were prepared for growth, especially in September. We knew those kids were going to be coming before count day but then they kept coming, and they came in droves,” Brown said.

Now, Michigan Great Lakes Virtual Charter Academy is almost the biggest online school in the state.

Schroeder says the online charter school had 2,800 students at the end of this school year. That’s nearly twice as many kids as the public school district in Manistee that charters it.

It’s really good news for Manistee Area Public Schools. The more students who enroll in the virtual school, the more money the public school gets.

All charter authorizers take a percentage of their charter schools’ revenue for overseeing the academies they run.

The standard is to take 3%.

For Michigan’s largest charter authorizers, Grand Valley State and Central Michigan Universities, that 3% amounts to more than $6 million apiece.

Manistee schools will get roughly $500,000 from the virtual charter school this year; that’s about $300 extra per kid.

“None of this had to do with money in the beginning,” Andy Huber, Manistee High School principal said.

Huber says the district started offering online classes more than a decade ago to help Manistee students recover credits. It evolved from there, but the small school district’s technology capabilities held back growth.

After Michigan lawmakers lifted the cap on the number of virtual charter schools in 2011, Manistee leaders attracted online education giant K12 Inc, signing a five year contract to run the new Michigan Great Lakes Virtual Charter Academy.

“Quite frankly, somebody’s going to do it. It might as well be a public school,” Huber said.

“We might as well partner and benefit that opportunity for everybody; our students and students across the state,” Huber said.

That half-million dollars could cover eight full time teachers. It’s a lot of money for such a small district.

Mostly though, the extra money just means Manistee doesn’t have to make huge budget cuts.

Why Manistee’s new online charter school is such a success

A few other school districts have started their own online charter schools. But none come close to the size of Manistee’s.

“And size is not the goal. But size is an indicator of the quality of program that you’re providing,” John Chandler said.

Chandler used to be Manistee Area Public Schools’ superintendent. He led the setup.

“The (online school) is not bound by walls and different things that would prevent another school from accepting more students. They can accept more students. They’d just hire more staff,” he said.

Chandler expects enrollment at the online charter school to be between 3,500 to 5,000 students next school year.

“I think (Manistee schools) were in the right place at the right time, with the right board of education, and, to not pat myself on the back but, also with the right superintendent. It was kind of the perfect storm,” Chandler said.

Chandler was an oddball in Lansing when he testified in 2011; a public school superintendent in favor of lifting the cap on the number of schools and Michigan students who could attend online charter schools.

It was in Lansing that Chandler first met representatives from K12 Inc.

Chandler says demand for online schools is clearly there, but he says solid technology and good local leadership put Manistee’s online charter school ahead of the pack.

Any public school district in Michigan could technically, legally do what Manistee schools did. But could other districts easily repeat their success?

“Never say never you know? It just takes the right situation and I guess it could be repeated but I just don’t see that as being something that’s going to happen."

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"For an online course there has to be two way communication a number of times during the semester. And what happened is that – well they weren’t able to meet that requirement. They weren’t able to show us there was two way communication,” Ellis said.

The debate over the effectiveness of K-through-12 cyber schools is ramping up at the state Capitol.

A state House panel is considering a measure that would allow more "cyber schools" to operate in Michigan.

There are currently two cyber schools authorized in Michigan.

Former state schools Superintendent Tom Watkins supports allowing more cyber schools to operate in the state. But he cautioned lawmakers to take careful consideration of how well individual schools are performing.

“I would invoke an old Chinese saying; that once you open the window, all the flies can come in,” said Watkins.

Those opposed to more cyber schools in the state say not enough is known about their success rates.

Democratic state Representative Rudy Hobbs, playing on Watkins' flies metaphor, said he wants to make sure new cyber schools operating in the state meet high performance standards.

"Once we pass this, we open up the window. All the flies can come in; every single one of them," said Hobbs. "And then we have to try and figure out which ones are good, which ones are bad, get our fly-swatter out and kind of kill the ones that are bad. Why get the fly-swatter out? Let’s just make sure we let the good ones come in and be done with it."

Supporters of online learning say kids and parents should be afforded more education options and opportunities in the digital age. And they say wait-lists for cyber schools are long.

Republican state Representative Tom McMillin chairs the House Education Committee.

"Education is changing, and it’s changing rapidly. But if we don’t change, the world’s not waiting. And we can’t be stuck in some of the older ways of doing things and our kids are going to be left behind and our state is," said McMillin.

Governor Rick Snyder says he wants traditional public schools to incorporate more cyber-learning. But he has not called for more online-only schools.

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